Tools of the Trade: Financial Aid and the Recession

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Mark Mitchell, Vice President of the School Information Services Team at the National Association of Independent Schools (NAIS), discussed the impact of the recession on schools and their ability to continue to provide support to families in the independent school enrollment process.

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Tools of the Trade: Financial Aid and the Recession

  1. 1. Financial Aid and The Recession April 8, 2010 NPEA Conference, Baltimore Mark J. Mitchell, Vice President mitchell@nais.org
  2. 2. “Truth and justice make their best way in the world when they appear in bold and simple majesty.” --Elizabeth Heyrick, 19th-Century English abolitionist
  3. 3. Learning from the Past? “There is no guarantee that this recession will be like the last…But the past can give us a perspective on the future…And recessions, even long and deep ones, do eventually end.” --Gregory Acs, “Unemployment and Income in A Recession,” Urban Institute, December, 2008
  4. 4. Economic Trends and Financial Aid 22-Yr Avg Ann Chg in Aid Granted: 7.61% 91-92: Avg Aid up 13.3% 02-03: Avg Aid up 13.1% Avg Apps up 6.5%
  5. 5. 20.00% Increased Fin Aid 1-year change 2008-09 to 2009-10 17.44% 15.79% 15.00% 13.94% 10.00% 5.00% 0.60% 0.00% Median One Year Median One Year Median One Year Median One Year Median One Year Percent Change in Percent Change in Percent Change in Percent Change in Percent Change in Enrollment Financial Aid Financial Aid Financial Aid Financial Aid Dollars (Need- Students (Need- Dollars per Student Students as % of -5.00% based Financial based Financial in Financial Aid Total Enrollment -3.95% Aid) Aid) (Need-based (Need-based Financial Aid) Financial Aid) -10.00%
  6. 6. What Just Happened?  Same pattern as previous two major recessionary periods – It’s what has helped schools weather the storm in the past – Median fin aid budgets up 17.4%, serving 15.8% more students – Spent slightly more on financial aid dollars per student, but to a wider base of families (largely returning, former full- pays)  It’s a natural consequence of downturn that more people will need more help  Questions: What does the near-future hold? What’s the impact on high-need families? Is this “new normal?”
  7. 7. Will This Last…Three Forecasts  Unemployment rates not expected to decrease any time soon – Different impact on families based on educ level  Most major housing markets will continue to see decline in home values – Consumer confidence remains weak or slow to rebound  Mean income growth very slow, sluggish at all levels…below inflation
  8. 8. Unemployment Rate Projection Source: The Financial Forecast Center, www.forecasts.org
  9. 9. back Unemployment Rates, January by Educational Attainment 2000 2005 2010 Change Factor (2000 to 2010) All 4.0 5.3 9.7 2.425 LT High School 6.4 7.7 15.2 2.375 High School 3.4 4.7 10.1 2.975 Grad, No College Some College 2.6 4.1 8.5 3.269 College Grad 1.8 2.4 4.9 2.722 Source: Bureau of Labor Statistics, Labor Force Statistics from Current Population Survey
  10. 10. Housing Market Projections back Pct Chg in Projected Home Values Selected Major Markets 15 10 5 0 -5 -10 -15 Source: Housing Predictor website, www.housingpredictor.com -20
  11. 11. Income Change Mean Income by Quintiles, Family Households CPI-adjusted to 2008 Dollars 2000 2005 2008 Lowest $17,657 $16,286 $15,906 (2008: $27,800 and lower) Second $40,371 $38,752 $38,125 ($27,801 – $49,325) Third $63,449 $62,012 $61,582 ($49,326 - $75,000) Fourth $93,511 $92,748 $92,160 ($75,001 - $113,205) Highest $196,195 $194,432 $190,400 ($113,206 and higher) Top 5 Percent $347,661 $340,393 $326,928 ($200,00 and up) Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements
  12. 12.  Families less able to Schools with recent rates of Trends Within keep pace tuition change – Check local economy, demography…income change lag inflation? – Higher-income, current full-payers more likely to be aid-eligible – Lower-income, more expensive students less attractive, less affordable  Shifting from aid for “access” to aid for “affordability” – Increased budget but competing priorities for dollars – Seeking to meet new, unforeseen need of higher-income families – Recession fall-out will exacerbate the prime “either/or” scenario:  Fund either one $25,000 grant OR five $5,000 grants  Mission Risk: Those who need aid most increasingly unlikely to get it
  13. 13. Other Pressures Mounting…  Funding for K-12 grants from agencies, other organizations tighter or disappearing – Federal, state support waning – Fundraising more difficult to sustain  Voucher programs as a funding priority being called into question (e.g., Washington DC)
  14. 14. Financial Aid and Family Issues  Job and Income Loss – Work to get a projected income statement and documentation – Use “provisional” or semester-based awards – Follow up regularly for updated job status  Personal debt – View carefully case-by-case – Allow more leeway if credit cards used to pay normal expenses due to income loss – Count annualized monthly payments as unusual expenses  Decreasing Net Worth – Remind families that the application seeks a “snapshot in time” of current situation – Lowered values will be considered in assessments if they complete the application correctly
  15. 15. Effects On Financial Aid Processes As more people continue to watch dollars, curb spending where feasible, and seek assistance for ‘must haves’…  Meeting deadlines, completeness of applications more important than ever  Funds for new students, particularly high-need prospects, may be reallocated to a growing, unanticipated degree  Potentially, wiggle room for appeals and reconsideration of school’s first award offer is tightening
  16. 16. back Affordability Differential: Tuition Change Rate/Income Change Rate (2000-2005) Full-day K 3rd Grade 6th Grade 12th Grade 1st Quintile 6.96 6.87 6.87 6.26 2nd Quintile 3.61 3.56 3.56 3.24 3rd Quintile 2.94 2.91 2.91 2.65 4th Quintile 2.56 2.52 2.52 2.30 5th Quintile 2.58 2.54 2.54 2.32 Top 5 Percent 2.89 2.86 2.86 2.60
  17. 17. back Grants awarded within each income quintile Source: Wash DC-Area Day School, US Census Bureau National Family Income Number of Average Grant Range ($) Grants Awarded ($) Quintile Lowest 0 - 24,780 5 22,898 Second 24,781 – 43,399 5 21,125 Third 43,400 – 65,827 21 16,817 Fourth 65,828 – 99,999 31 16,829 Fifth > 100,000 41 11,899

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